The Shell Deer Park oil refinery in Texas
Oil prices hit as high as $70 on Monday Image Credit: AP

Abu Dhabi: Oil prices hit as high as $70 on Monday with markets watching closely on any potential fallouts that could disrupt oil supplies as a result of escalating US-Iran tensions.

Prices did recede as the day went on with Brent crude trading at $69.45 and West Texas Intermediate (WTI) on $63.70 by 5pm UAE local time; both still over 1 per cent higher than their closing on Friday.

In Iran, funeral processions were held in the capital , Tehran, for slain Quds Force commander Qasim Soleimani, with the country continuing to vow revenge over his death as a result of a US airstrike ordered by president Trump.

Trump on Sunday also threatened to impose sanctions against Iraq as a result of a non-binding parliamentary decision calling for the removal of US troops from the country. Trump also repeated his threats to retaliate against Iran should any Americans or American sites fall under attack.

“It’s a bit of a shocking start to the year and a lot of expectations are being squashed straight away; crude oil obviously has responded very strongly to this killing [of Soleimani] in Baghdad,” said Ole Hanson, head of commodity strategy at Saxo Bank.

“What the markets are obviously now worried about is the counter response from Iran and the US [in return], obviously the rhetoric over the weekend has been pretty tough on both sides,” he added.

“This market needs to see an actual disruption to supply otherwise we could see quite a substantial sell off because there’s been a lot of new longs coming into the market.

“The biggest risk lies in will Iran start to hurt transportation through the Straight of Hormuz when they still need to sell their own oil, so that’s probably doubtful… So we’ll just basically have to see how things play out,” he said.

Hanson said that short of geopolitical tensions spilling over, that the fundamentals of the oil market remained unchanged from 2019 in terms of demand and supply.

“We have to just also take stock and see where do we come from – we come from a situation of a market that is relatively oversupplied, Opec cut production in early December [last year] and the market rallied throughout December.

“Now we see it spike even higher, but we still haven’t [seen] in Brent crude the spike high that we saw after the Aramco attack back in September,” he added.

“The only thing we can rest assured is that volatility is going to stay elevated for the time being.”